Chinese Companies Look to Fund Russian Mining Railroad

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May 31 – China Railway Materials Commercial Corp. and SUYU Railroad Material Co. could get involved in funding a railroad branch line to be constructed to the Ozernoye mining site in the Buryat Republic of Russia.

Conditions of the financing agreement state that the owner of the deposit IFC Metropol will buy construction equipment, railroad cars and locomotives from China. Chinese rail accessories and rolling stocks are several times cheaper than their domestic counterparts, but certificate barriers have prevented Russians from purchasing these in the past. Metropol may now become the very first to bring Chinese manufactured technical equipment to the Russian market, but experts believe that it would be hard to break state resistance.

Parties of possible joint projects are currently negotiating the construction of the 164 kilometer-long railroad from the Ozernoye mining site to the Mogzon point of the Trans-Siberian Railway. Discussed conditions include financing in exchange for the purchase of railway accessories (rails, railway fasteners, jointing, switches), locomotives, and freight cars from Chinese companies. Metropol also negotiated with the government for budgetary financing within the framework of the private-state partnership, an informed company official told the Russian daily Kommersant-Irkutsk.

Other foreign companies can also be involved in the project according to Metropol officials. The company is now discussing technical questions regarding ore processing with Chinese Metallurgical Corp., and shared equity possibilities in building the mining site with Arabian Millennium Finance Corporation.

The Ozernoye mining site is over lead and zinc deposits. The volume of investment needed to construct the mining and processing plant is estimated at US$1.3 billion and the railroad branch line from the Ozernoye mining site to Mogzon was estimated at over US$1 billion in 2007. According to the development schedule, construction will start by the first quarter of 2011, the processing plant will be put into operation by 2012, and it should reach planned capacity by 2013.

“If Metropol happens to license the Chinese railway accessories, it will open up the domestic market for cheap Chinese rails and freight cars,” a Russian metallurgical company employee said to Kommersant-Irkutsk.

According to Alexey Bezborodov, director of the research agency Infranews, Chinese railway accessories are four to five times cheaper than Russian ones. “For example, Chinese manufactured semicars now cost US$10 thousand each, when ours is US$40 thousand,” he explained while adding that Russian authorities may not allow them to enter the country’s market to support domestic manufacturers. At the same time, rail cars made in China are of lower quality than those produced in Russia.

Russian metallurgists are not afraid of Chinese manufacturer’s possible entry to the domestic market. “Russian car manufacturers receive less than 5 percent from our total volume of steel production,” a metallurgical company official said to Kommersant-Irkutsk.

The Russian rails manufacturing monopolist Evraz Group refused to comment, having noticed that the possible Metropol and SUYU deal is “not the only one and not the biggest one.”